Samruk-Kazyna Deputy CEO Elena BAKHMUTOVA:
THE ECONOMIC EFFECT OF THE TRANSFORMATION PROCESSES ONGOING IN SAMRUK-KAZYNA SUBSIDIARIES TO REACH 125 BILLION TENGE A YEAR AFTER 2020
The Board of Directors of the National Wealth Fund Samruk-Kazyna (the SK) adopted in early autumn 2014 a Transformation Program aimed to increase the value of the existing assets, to optimize the portfolio and improve the corporate management.
Samruk-Kazyna Deputy CEO Elena BAKHMUTOVA told Interfax-Kazakhstan in an interview about the reforms that will be implemented in Samruk-Kazyna companies and the expected outcomes.
- Samruk-Kazyna is implementing the Transformation Program that is expected to bring additional two trillion tenge to the GDP by 2020. Has the program produced any results yet?
- To begin with, I would like to remind you that the Program was launched on October 6, 2014 at a forum that was attended by the Kazakh president. Though it has not been long since that time, we can already boast of interim results.
The Transformation Program has a few stages that will be gradually and consecutively carried out in pilot companies. At the moment, seven companies including the headquarters of Samruk-Kazyna are going through various stages of transformation.
The pace and duration of the transformation stages will vary from company to company. At the moment, the transformation process is fully underway in three pilot companies and the corporate center of Samruk-Kazyna.
We deliberately started the process from the head office because it is Samruk-Kazyna that works out basic approaches to the strategies of its companies. Also, the transformation working group is based in the SK. This group provides methodological and practical support to the subsidiaries, collects and analyzes international best practices and helps introduce those of them that have been tested in the SK in the subsidiaries.
Except for the corporate center, Kazpost JSC, which is another pilot company along with Kazakhstan Temir Zholy and KazMunayGas, has made good process. The transformation program has been launched this year in Kazatomprom and KEGOC and Samruk-Energy JSC will join in the near future.
The whole transformation process is split into a few stages: preparations, design, planning and implementation. The economic effect is expected to be achieved about three years after the implementation stage is complete. According to our estimates, the transformations in our portfolio companies will annually bring from 80 to 125 billion tenge in economic benefits after 2020.
The expected economic benefits include cost optimization, a decrease in the cost of capital and higher return on investment.
- To the best of our knowledge, the main goal of the transformation is to increase the value of the SK companies and improve their financial and operational efficiency. Will the Transformation Program influence the 2015 financial results of the companies? Also, can it somehow help offset the falling oil prices?
- Unfortunately, the last year’s results are not very impressive, mainly because of the oil prices. For instance, the consolidated net income was at about 271 billion tenge last year.
The effect of the Transformation Program will be very modest in the short term as the Program was launched not long ago.
Of course, there will be “quick wins” in some of the companies in the short- and midterms and even today, which is the case with Kazpost JSC. However, we expect more substantial results only after 2020.
- Is the 2015 income forecast still 90% lower from a year earlier?
- Normally, we do not include the second tier banks in our income. For instance, our net income was at 654 billion tenge in 2013, at 333.7 billion tenge last and the forecast for this year is at 61.7 billion.
This is due to a variety of factors including the global oil prices, economic slowdown, Tenge correction and others.
- Does Samruk-Kazyna still plan to borrow up to $2.5 billion in 2015 as announced earlier?
- We still need to access capital markets. Most of the investment projects require long-term borrowings. The real demand for financing and time to access the capital market, either through a public issue or private placement, will be determined as appropriate and taking into account the economic situation in the companies and the markets.
- Privatization and IPO of subsidiaries are also part of the Transformation Program. How will the current economic situation affect this part of the Program, in particular the ‘people’s’ IPO? Do you think the shares of Samruk-Energy JSC will be in great demand?
- I would focus on the predictability of the company value rather than on the demand.
In particular, the existing laws need to be amended so that Samruk-Energy could come out with an IPO. Otherwise, there will be still some uncertainty about the future value of the company, which will not help attract investors.
We need to make a final decision about the privatization program, for nearly up to 50% of Samruk-Energy owned assets will be put up for sale. The future value of the company will be easier predicted after the assets have been sold. The IPO expectations directly depend on the preparations that are not over yet.
- Samruk-Kazyna said earlier this year that the privatization plan would be revised. What is the current status of the IPO plan? It was also said earlier that Samruk-Energy would be followed by Kazakhstan Temir Zholy and Kazatomprom.
- Our program is rather flexible. It is still 2016 according to the plan. However I believe that the final dates will be fixed only when the companies are really ready for IPO. As you may know, the president announced the plan to create the Astana International Financial Center. I reckon that the possibility for our companies to access the stock market will be considered in this view. Also, the ‘people’s’ IPO program and the public issue program may have to be coordinated in this connection.
- Air Astana President Peter Foster said earlier that the airline would come out with an IPO in the next three-four years. Are there negotiations underway between Samruk-Kazyna and BAE Systems about the IPO?
- We have no information as to whether our partners are ready to sell their shares. As far as Samruk-Kazyna is concerned, we are not going to reduce our stake either. So, this issue is not on the table.
- Thank you for your time.
June, 2015
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